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How do you understand our political system functions? It could be similar to this. Citizens choose MPs. They debate and pass bills. If a majority is achieved, the bills become law. Legislation is maintained by the courts. Simple as that. Well, that’s how it once functioned. Not anymore.

The Emergence of Shadow Arbitration Panels

Today, foreign corporations, or the oligarchs who own them, can sue nation states for the policies they pass, at offshore tribunals staffed by commercial attorneys. Such disputes take place behind closed doors. In contrast to domestic courts, these bodies provide no opportunity to appeal or judicial review. The general public are barred from bringing a case to them, nor can our government, including companies headquartered in this country. Access is granted exclusively to corporations registered abroad.

If a tribunal rules that a law or policy might diminish the corporation’s expected profits, it may order financial penalties of hundreds of millions, running into billions.

This compensation represent not real financial harm but funds the arbitrators conclude the company would perhaps have made. The state could be forced to rescind the measure. It becomes deterred from enacting future policies of a similar nature, for fear of being sued.

A Process Growing Exponentially

Record numbers of cases are being filed, as companies learn from each other, and investment funds fund legal actions in exchange for a share of the settlements. The consequence? National sovereignty and democratic governance are turning into prohibitively expensive.

The system is known as “investor-state dispute settlement” (ISDS). The rationale it is allowed to override a country's own laws and the decisions taken by parliaments is that this stipulation has been inserted – without democratic mandate, and frequently under a climate of total confidentiality – inside international trade agreements.

A Concrete Example: The Whitehaven Coalmine

A year ago, environmental campaigners secured a significant win at the senior court. The presiding officer ruled that schemes to excavate the first deep coalmine in the UK for three decades, in northwest England, were unlawfully approved by the previous government, which had endorsed the bizarre claim that the mine could have no impact on our carbon budgets. The Labour government later cancelled the permission the Tories had approved. Currently, this victory faces being overturned by an offshore tribunal accountable to only the companies bringing the case.

Last August, a firm whose ultimate owners are based in the offshore financial centre lodged a claim challenging the UK government. Last week a dispute settlement body in Washington DC was established to adjudicate on it.

The claimant is litigating against the UK for the money it could have earned if the mine had been permitted to proceed. We have no clear indication how much this sum represents. Which individual is acting on its behalf challenging the state? An elected representative, and ex-law officer in the outgoing administration, the noted patriot the MP. The state enacts a policy, the high court upholds it, then a foreign company disputes it through an unaccountable arbitration panel, and a member of our parliament works for its behalf.

A Sanctions Lawsuit

Simultaneously that the tribunal on the coalmine case was convened, we learned from a parliamentary answer that the UK is also being sued under ISDS by a wealthy Russian individual, Mikhail Fridman. The public knows scarce of the case at present, but it seems likely that he will utilise the tribunal to contest the penalties the UK levied against him subsequent to the invasion of Ukraine. He has previously started suing a small nation on these grounds, claiming a colossal sum: equivalent to half of government’s yearly income. Included in the lawyers on his side? Cherie Blair, married to the ex-UK leader.

Legal experts argue that the EU’s procrastination in utilising seized state funds as collateral for its aid for Ukraine stems from Belgium’s fear that it could be taken to court in the secret arbitration panels, under a investment pact. This unprecedented, unaccountable authority over democratic administrations may be obstructing the money Ukraine urgently requires.

False Assurances and Escalating Risks

Politicians promised that these events wouldn’t happen. Previously, a senior politician, promoting the most significant and hazardous of all these agreements, told us: “The UK has signed trade deal upon trade deal and there has not been a case in the past.” A consultant on this topic labelled campaigners of “scaremongering … the fact is, ISDS barely touches the UK much”. The general impression appeared to be that only poorer nations had to worry about ISDS claims. Warnings that “when companies begin to understand the authority bestowed upon them, they will turn their attention from the poorer states to the strong ones” were met with scepticism.

That warning has now materialised. In the current period, energy and resource corporations have filed a record number of claims against nations both wealthy and developing, opposing – like the example of the UK mine – state efforts to stop global warming. Firms have to date won vast sums by using ISDS, of which energy giants have obtained the majority. That is equivalent to the combined GDP